TaxTMI 
TaxTMI 
2025 (12) TMI 1568
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....ompanies Act, 2013. The Applicant is an electronics manufacturing company with its headquarters at Rewari, Haryana. The Applicant is inter alia engaged in the manufacture of Display Assemblies and is now proposing to import the following list of inputs and parts which are to be used for manufacturing of Display Assemblies which in turn will be used in the manufacture of Cellular Mobile Phones. SI. No. Description of Inputs and Parts proposed to be imported Chapter or Heading or Sub-Heading or Tariff Item 1 Cell Any Chapter - vide NN 57/2017 2 Integrated Circuit 3 Flexible Printed Circuit Assembly 4 FPC on Glass (FOG) 5 Optical Clear Adhesive 6 Cover Glass 7 Backlight Unit 1.1 Applicant's eligiblity for advance ruling and why it is maintainable before the Hon'ble CAAR :- S. No Requirement under the Customs Act How it is met in the present case 1. Section 28E(b) defining advance ruling The Applicants in the present case are seeking a written decision on the questions as referred to in Section 28H of the Customs Act, 1962, in terms of Section 28E(b). 2. Section 28E(b) read with....
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....ightness of the pixels, resulting in the production of high-quality and visible images. b. Liquid crystal material layer: Liquid crystal (LC) is a state of matter whose properties are between those of conventional liquids and those of solid crystals. The liquid crystal used in the liquid crystal display is Twisted Nematic liquid crystal wherein the liquid crystal molecules are oriented in the same direction (90° Angle) without forming layers. After the light passes through the first layer of polarizer, the unpolarized light provided by the BLU becomes linearly polarized light. Thereafter, the polarization direction of the linearly polarized light will then be twisted along the twisting direction of the liquid crystal molecules. This makes the polarization direction to be the same as that of the second layer of polarizer, thereby allowing the light to pass through the second layer of polarizer. c. Thin Film Transistor (hereinafter referred to as "TFT"): TFT is a special type of field-effect transistor (FET) where the transistor is made by thin film deposition. TFTs are grown on a supporting (but non-conducting) substrate. A common substrate is glass, because th....
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.... Applicant to filter out any defective input or part. Upon identification of defective inputs, applicable duty is paid on such parts as they are not fit to be used in the manufacture of Display Assemblies. (b) Forwarded on Manufacturing Line: The filtered inputs are thereafter forwarded to the manufacturing line for the manufacture of Display Assemblies. During the manufacturing process, a certain quantity of goods become unusable due to failures that occur during the modification of such inputs and parts for manufacturing the final product, i.e., a Display Assembly. (The imported inputs and parts which become defective/unusable during the manufacture of Display Assembly is hereafter collectively referred to as "subject goods") 1.3.9.1. The Display Assembly so manufactured is then sold by the Applicant to Cellular Mobile Phone manufacturers. These Cellular Mobile Phone manufacturers use the Display Assemblies supplied to them by the Applicant in the manufacturing of Cellular Mobile Phones which are then sold to the end users. 1.3.9.2. The Ld. Customs Authority for Advance Ruling (hereinafter referred to as the "Ld. CAAR") is hereby apprised of the fact that the Appli....
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....argeable under any other law for the * time being in force in the same manner as duty of customs leviable under this Act or the Customs Tariff Act;] (e) determination of origin of the goods in terms of the rules notified under the Customs Tariff Act, 1975 (51 of 1975) and matters relating thereto. 1.4.6 The present application is being furnished by the Applicant to confirm the availability of the benefit of SI. No. 5D(b) of NN 57/2017 for the subject goods which is issued under Section 25(1) of the Customs Act. 1.4.7. Therefore, it flows that in the present case, the Applicant is satisfying the following conditions required for filing the application for advance ruling, namely: a. Applicant has been granted a valid Importer-Exporter Code Number (IEC) under section 7 of the Foreign Trade (Development and Regulation) Act, 1992; b. Application for advance ruling is in relation to clause (b) of Section 28H (2) of the Customs Act. Non-Applicability of Bar under Section 281 1.5. Section 28-1 of the Customs Act, 1962 is set out below: "SECTION 28-1. Procedure on receipt of application. - (1) On receipt of an application, the Authori....
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....hus, the present application must be allowed to be proceeded with. 1.9. Availability of the benefit of SI. no. 5D(b) on import of the inputs and parts 1.9.1. The Applicant submits that the benefit of 'nil' rate of duty in terms of SI. No. 5D(b) of NN 57/2017 is available on the import of the subject goods i.e. on the import of the portion of inputs and parts which were used in the manufacturing process of Display Assemblies but did not end up being a part of the final Display Assemblies so manufactured, as a result of being scrapped/rendered unusable during the manufacturing process due to the failure(s) in the process used in the manufacture of Display Assembly of Cellular Mobile Phones. The said process is explained hereinabove under the technical specifications column and is therefore not reiterated for the sake of brevity. The interpretation and submissions of the Applicant in support of its interpretation of the availability of the benefit of NN 57/2017 as discussed hereinabove is elucidated in the ensuing paragraphs. 1.9.2. The Customs Act is the authority which prescribes the framework to govern the imports and exports into and from India. Section 12 of the ....
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....r follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017. 1.9.7. Further, vide notification no. 74/2022 - Customs (N. T.), dated, 9th September 2022 the Central Government in supersession of the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 (hereinafter referred to as "IGCR, 2017") notified the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (hereinafter referred to as "IGCR, 2022"). 1.9.8. Rule 5 of IGCR, 2022 provides for the procedure to be followed under IGCR, 2022 if an importer intends to avail the benefit of a notification. The said rule is extracted below: "5. Procedure to be followed. - (1) The importer who intends to avail the benefit of a notification shall be required to mention the HIN (referred to in sub-rule (2) of Rule 4) and continuity bond number and details while filing the Bill of Entry. (2) The Deputy Commissioner of Customs or, as the case may be, Assistant Commissioner of Customs at the custom station of importation shall allow the benefit of the notification to the importer. (3) Where a Bill of Entry is cleared fo....
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....7 is available in respect of the 'inputs and parts' "for use" in the manufacture of display assembly and not in respect of inputs and parts 'used' in the manufacture of display assembly. 1.9.16. The use of expression "for use in manufacture" indicates that the benefit under NN 57/2017 is available in respect of all 'inputs and parts' which have been used for manufacturing the display assembly irrespective of whether the said 'inputs and parts' form part of the finished display assembly or not. 1.9.17. It is submitted that it is a general cardinal principle of most of the manufacturing processes that there will be some inherent loss/damage which is unavoidable considering the nature and complexity of manufacturing process. The inputs which get consumed during the manufacturing process whether by way of forming part of the final output or by way of the inherent process loss/damage are all in fact used in the manufacturing process of the said final product. 1.10. It is submitted that the phrase 'for use in manufacture' has not been defined under the Customs Act, however, what amounts to 'inputs being used in the manufacture of goods....
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.... be denied in respect of goods which were intended for use for manufacture of the final product but could not be so used due shortage or leakage. The Apex Court further held the following: "We are of the view that no material distinction can be drawn between the loss on account of leakage and loss on account of damage. The words 'for use' used in similar exemption Notifications have also been construed by this Court earlier in the State of Haryana v. Dalmia Dadri Cement Ltd., [1987 (11) TMI 94 -SUPREME COURT OF INDIA] to mean 'intended for use'. According to this decision the object of grant of exemption was only to debar those importer/manufacturers from the benefit of the Notifications who had diverted the products imported for other purposes and had no intention to use the same for manufacture of the specified items at any stage." 1.14. Similarly in the case of Steel Authority of India Ltd. V/s Collector of Central Excise 1996 (7) TMI 147 - SC, the Hon'ble Supreme Court dealt with the question whether exemption would be available to 'raw naphtha' intended for use in the manufacture of fertiliser would be available in respect of 'raw na....
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....foregoing discussion, it can be concluded that the inputs which are used in the manufacturing process of the final product, but, are lost /scrapped/ do not form part of the final product due to the failure of the process of modification that they undergo during the manufacturing process of the final product, merit the same treatment and benefits which the inputs that successfully form part of the final product receive including the benefit of exemption from duties of Customs. 1.17. Accordingly, it is submitted that the subject goods i.e. the imported inputs and parts which are scrapped/lost owing to the failures that occur during the modification of such inputs during the manufacture of Display Assembly and thus does not form part of such finally produced Display Assembly also merits availment of the benefit of 'nil' rate of duty in terms of SI. No. 5D of NN 57/2017 as is extended to the other inputs which do form part of the final Display Assembly. 1.18. Issues requiring advance ruling and applicant's understanding In light of the aforementioned submissions, the Applicant's interpretation of the questions raised will be as under: a) Question....
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.... Ntfn 57/2017 dated 30.06.2017 sought, appears to be not extendable in respect of imported inputs and parts which are damaged/scrapped during the manufacture process for manufacture of Display Assembly. 3. Records of the Personal Hearing: Personal hearing in the matter was conducted through physical mode on 01.08.2025. During the course of personal hearing, the authorized representatives of the applicant i.e. Ms. Keerti Kataria reiterated submissions made in their application. Further the A.R was asked about the sample product/parts of display assembly of mobile phone. The A.R showed al parts except cell. Whereas they requested one week time to submit the sample product/parts of display assembly of mobile phone along with submissions. Further, no one appeared from the concerned customs port. 4. Additional Submission: 4.1 This is in reference to the Comments received from the Ld. Jt. Commissioner of Customs ("Ld. JC") dated 03.09.2025 ("subject letter") on the Advance Ruling Application filed by M/s TXD (India) Technology Pvt. Ltd. ("Applicant") bearing No. 77/2025 under Section 28H ("AAR") of the Customs Act, 1962 ("Customs Act") seeking a ruling from your good self on ....
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....ntioned in the concerned notification within the period and with respect to unutilised or defective goods, so imported, the importer shall have an option to either re-export or clear the same for home consumption, within the said period, namely - (i) within the period specified in the notification; (ii) within one year from the date of import, where the time period is not specified in the notification: Provided that, the said period of one year can be further extended by the jurisdictional Commissioner for a period not exceeding three months, if sufficient reason is shown that the causes for not conforming to the time period were beyond the importer's control. (2) Any re-export of the unutilised or defective goods referred to in sub rule (1) shall be recorded by the importer in the quarterly statement by providing the details of necessary export documents: Provided that the value of such goods for re-export shall not be less than the value of the said goods at the time of import. (3) The importer who intends to clear unutilised or defective goods for home consumption shall have an option of voluntary payment of applicable du....
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.... it is submitted that it is trite law, that the treatment of products under the Customs Law is to be determined on the product's 'as-imported' condition. It is further submitted that Rule 7 of IGCR, 2017/Rule 10 of IGCR, 2022 is not applicable in the present case and thus, the comments of the Ld. JC are hereby, ruled out. 4.8. Accordingly, it is prayed of your good self to give an Advance Ruling holding that the subject goods are eligible to claim the benefit of exemption from payment of duty in terms of SI. No. 5D(b) of NN 57/2017. 5. Findings, Discussions and Conclusion 5.1 Having completed the procedure laid down in the CAAR Regulations, I first allow the application taking into account the facts of the case and submissions made by the applicant. In view of the submissions made in the application for advance ruling and argument made during the personal hearing by the applicant, I proceed to decide the present application, regarding benefit of SI. No. 5D(b) of Notification No. 57/2017-Customs dated 30.06.2017 for goods 'Cell, Integrated Circuit, Flexible Printed Circuit Assembly, FPC on Glass (FOG), Optical Clear Adhesive, Cover Glass, Backlight Unit'....
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....from India. Section 12 of the Customs Act prescribes that duties of customs shall be levied on all goods imported into India or exported out of India at such rates as may be specified under the Customs Tariff Act, 1975 (hereinafter referred to as the "Tariff Act"). 5.5. I find that Section 2 of the Tariff Act provides for two schedules namely, the First and Second Schedule. The First Schedule provides the applicable custom tariff rates on import of goods into India and the Second Schedule provides the applicable custom tariff rates on export of goods out of India. Section 2(23) of the Customs Act defines "import" as follows: "import", with its grammatical variations and cognate expressions, means bringing into India from a place outside India; " 5.6. Further, Section 25 of the Customs Act contains provisions regarding power to grant exemption from duty. Section 25 (1) of the Customs Act reads as under: "SECTION 25. Power to grant exemption from duty. - (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such ....
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....ere a Bill of Entry is cleared for home consumption, the bond submitted by the importer gets debited automatically in the customs automated system and the details shall be made available electronically to the jurisdictional Customs Officer." 5.9. I observe that for the purpose of this application, the Applicant submits that it will duly comply with the procedure laid down in Rule 5 of the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022. It is evident from S. No. 5D (b) of the exemption notification furnished above that exemption from duty of Customs have been provided on import of inputs or parts for use in manufacture of such display assemblies which are in turn used in manufacturing of cellular mobile phones. The Applicant submits that it currently only manufactures display assemblies which are in turn used in manufacturing of cellular mobile phones. Considering the Applicant is only engaged in manufacturing of display assemblies which are in turn used in manufacturing of cellular mobile phones, the Applicant submits that it will import inputs and parts only for the purpose of use in the manufacturing display assemblies. The Applican....
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....aid Rule is only applicable in situations where the importer seeks to import, under the claim of exemption, the goods which are already defective at the time of import itself. In the case on hand, the goods which are sought to be imported under the claim of exemption from payment in terms of SI. No. 5D(b) of NN 57/2017 are not defective at the time of import. These goods, which are used in the manufacture of Display Assembly for use in Smartphones, get damaged / destroyed as a result of the manufacturing process they are subjected to. The goods sought to be imported are not damaged at the time of their import. 5.13. In light of the above, I find that the treatment of products under the Customs Law is to be determined on the product's 'as-imported' condition. It is further submitted that Rule 7 of IGCR, 2017 /Rule 10 of IGCR, 2022 is not applicable in the present case and thus, the view of the department is not tenable. 5.14. The question under the present application is in relation to the inputs and parts which are damaged during the manufacturing process and are subsequently scrapped by the applicant. In specific, the question is whether the benefit provided in r....
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....ally connected with the ultimate production of goods so much so that but for the said process, manufacture of goods would be commercially inexpedient, goods used as inputs in that process would fall within the ambit of the expression 'used in the manufacture of goods' and such inputs will be considered as being part of the final manufactured product irrespective of the fact that they are physically not present in it. ii. Similar view was also upheld by the Hon'ble Madras High Court in the case of M/s. Rupa & Limited, Tirupur V/s The Customs, Excise and Service Tax Appellate Tribunal, The Commissioner of Central Excise 2015 (324) E.L.T. 295 (Mad.) wherein the Hon'ble High Court allowed the CENVAT credit against the entire inputs used by the assessee even when there was 5% manufacturing process loss. The Hon'ble High Court observed as under: "13. To say that what is contained in finished product is only a quantity of all the inputs ("the same weight as that of the finished product would presuppose that all manufacturing processes would never have an inherent loss in the process of manufacture. The expression 'inputs of such finished product&#....
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....cturing of a good would also be available in respect of inputs and parts which get scrapped during the manufacturing process, as these are used in the manufacturing of the goods. Same has also been upheld by various courts in numerous cases, some of the citations are as under :- i. The Hon'ble Supreme Court in the case of BPL Display Devices Ltd. V/s Commissioner of Central Excise, Ghaziabad 2004 (10) TMI 92 - SC held that benefit of the Notifications could not be denied in respect of goods which were intended for use for manufacture of the final product but could not be so used due shortage or leakage. The Apex Court further held that: "We are of the view that no material distinction can be drawn between the loss on account of leakage and loss on account of damage. The words for use' used in similar exemption Notifications have also been construed by this Court earlier in the State of Haryana v. Dalmia Dadri Cement Ltd., [1987 ( II) TMI 94 SUPREME COURT OF INDIA] to mean 'intended for use'. According to this decision the object of grant of exemption was only to debar those importer/manufacturers from the benefit of the Notifications who had divert....
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....t. The relief, as we understand the Notification, that has to be given to the manufacturer was in respect of the duty already paid on the raw material used in the manufacture of the final product. That is the relief has to be given to the extent of the duty paid on the input material and not with reference to the quantity which ultimately Thrills part of the final product." 5.18. Principles laid down in above judgements clearly shows that benefit under entry no. 5D (b) of Notification No. 57/2017 -Customs, dated 30th June, 2017 would be available in respect of inputs and parts which are damaged during the manufacturing process and are subsequently scrapped by the Applicant. 5.19. It is reiterated that the exemption benefit under the Notification No. 57/2017 is subject to Condition No. 1, which mandates that "If the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017". The said Rules have now been replaced by the Customs (Import of Goods at Concessional rate of Duty or for Specified End Use) Rules, 2022 ("IGCR Rules, 2022"). IGCR Rules 2022 has clarified (in Rule 13) that any reference made to IGCR Rules 2017 shall b....